Reg – 1231, 1245 and 1250 Property

CPA Exam Forum REG REG Review Reg – 1231, 1245 and 1250 Property

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    I am just a little confused on some issues with regards to property. Basically this is my understanding

    1231 Property is Depreciable personal use property or real property

    1245 Property is Depreciable personal use property used in a business

    1250 Property is Depreciable real property used in a business

    Could someone please elaborate on these areas. Also the definition of a capital asset are securities held for investment and no inventory ect. Could someone please clarify. Thanks for any feedback it is much appreciated,





    Here is my understanding;

    1231 Real or bus property held more than 1 year (not inventory); Gain is long term capital but loss is an ordinary loss

    1245 Machinery and Equipment;Depreciation recapture is ordinary gain, but remainer is 1231 (see above, LT capital gain)

    Depreciation Mid-quarter or 1/2 Year

    1250 real estate in business; Depreciation in excess of straight line is recaptured. Depreciation 27.5 year residential or 39 year non-residential – mid month convention.

    If any of these are held less than a year then its ordinary gain/loss.



    So I understand the purpose of depreciation recapture but I'm a little confused regarding the difference between 1245 and 1250. I understand how to find the amount of ordinary income/long term capital gain but I don't understand why 1250 only recognizes the additional amount of depreciation as ordinary income and not the full depreciation amount as with 1245. Can anyone shed any light?





    I think the easiest answer to your question is “because the IRS says so.” Sometimes, its just not a good idea to ask why, and this may be one of them.

    Another answer would be, since the 1245 assests and 1250 assets are different classes of assets, they are taxed differently.

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